Corporation tax cut should still be part of NI’s economic plan

The reduction of corporation tax in Northern Ireland was beginning to look last year as if it would happen.

Sinn Fein was a supporter of the idea.

This year Westminster passed legislation devolving the issue to Stormont, raising the prospect that the Province would match the 12.5 per cent rate in the Republic.

But three things have happened to endanger that plan.

First, Sinn Fein suddenly reneged on the Stormont House Agreement. Corporation tax had been one of the interlocking parts of the deal, although it was in fact welfare reform which was the subject of the first republican U-turn.

Now, however, there has been a gradual U-turn by Sinn Fein on the specific issue of corporation tax, with the party sending disapproving signals over the proposal.

Sinn Fein is wavering on both corporation tax and welfare reform for the same reason – next year’s Dail election in the Republic. It thinks that supporting either of these changes will undermine its anti-austerity platform, which is already in the spotlight given the drama surrounding Greece’s repudiation of austerity. Cutting tax for rich businesses hardly sits easily with such radicalism.

Then, yesterday, corporation tax was dealt another blow, with George Osborne’s announcement of an 18 per cent UK corporation rate by 2020. This means that the cost of a lower rate will be less, because of the reduced differential between the Northern Ireland and the England and Wales rates (it is unclear what will happen in Scotland) and so the cut in our Treasury funding will be less than it would have been.

But it also makes Northern Ireland less attractive. Companies might feel that it is better to be in London and pay 5.5 per cent more in corporation tax than be in the regions.

Even so, it is to be hoped a corporation tax cut can yet be agreed and tested. It is a measure that might well play a key role in bolstering Northern Ireland’s reputation as an industrious place with a thriving private sector.